Why BofA Projects Upside For EV Stocks Tesla, Lucid, Fisker And Nio

Electric vehicle manufacturers are staring at a huge market opportunity, and the arena provides scope for multiple players to compete profitably. BofA Securities analysts on Wednesday upwardly revised their price targets for a few EV OEMs.

The EV Analysts: BofA's John Murphy maintained a Neutral rating on EV market leader Tesla, Inc. TSLA and increased the price target from $1,000 to $1,200.

The analyst maintained a Buy rating on Lucid Group, Inc. LCID and hiked the price target from $30 to $60.

Murphy maintained a Neutral rating on Fisker, Inc. FSR shares and upped the price target from $18 to $24.

BofA analyst Ming Hsun Lee reiterated a Buy rating on Nio, Inc. NIO and increased the price target from $62 to $65.

Why No/Low-Cost Capital Could Push Stocks Higher: EV OEMs' valuation affords growth to drive valuation, analyst Murphy said in a note.

It is debatable if any of the startup EV automakers will ultimately be dominant over the long run, especially in a very competitive industry where the traditional automakers are also ramping up EV efforts, the analyst added.

"However, if a large global footprint can be built with no-cost capital, the "growth" story will likely continue to carry the day for the stocks," Murphy said.

Building capacity in the automotive industry is expensive and often generates low returns, the analyst noted. The higher the upward spiral of stocks for the EV OEMs, the cheaper capital becomes to fund growth, which is then rewarded by investors with a higher stock price, he added.

Capital for EV OEMs, the analyst said, is widely available and cheap in current market conditions. Therefore, momentum/support for many of the stocks, especially Tesla and Lucid, will persist, he added.

A 10% dilutive equity raise for Tesla could fund over 40 incremental plants and over 10 million units of capacity, Murphy said. This would make Tesla effectively the largest global automaker, he added.

A 10% dilutive equity raise for Lucid, meanwhile, could fund over three incremental plants and more than 750,000 incremental units of capacity, making the company a relatively large global luxury automaker, Murphy said.

Fisker is still far from commercialization, the analyst noted. The capital markets are unlikely to be supportive in funding accelerated growth until that hurdle is cleared, he added.

Related Link: Tesla Gets A New Street-High Price Target; 'EV Maker Now Looks More Scaled Up Than Most OEMs'

BofA Expects Capacity Ramp For Nio: The improvement in Nio's third-quarter gross margin was due to 517 million yuan ($80.9 million) in EV credit sales, BofA analyst Ming Hsun Lee said. The vehicle margin fell 2.3 points sequentially to 18% due to an increase in tooling depreciation cost and increased auto finance subsidy to push more 100kWh battery pack sales, the analyst said.

Nio carried out manufacturing line restructuring and upgrades for new product introduction in the Hefei JAC factory between Sept. 28 and Oct. 15, the analyst said. Also, Nio started equipment installation at its Hefei NEO Park factory and expects to start production in the third quarter of 2022, he added.

The capacity upgrade for NT2 platform is for a more aggressive models launch plan in the future, the analyst noted. The company plans three new models in 2022, and upgrades to current models, he added.

NIO guided to fourth-quarter deliveries of 23,500-25,500 units, implying a 3.8% quarter-over-quarter decline to 4.3% quarter-over-quarter increase, mainly constrained by battery/chip capacity, BofA said. The firm expects vehicle margin to remain flat in the quarter.

For 2022, Nio expects its new battery capacity to gradually ramp up and its GPM to improve, supported by a hybrid battery that would lower cost of goods sold, supply chain optimization and the launch of NT2.0 platform, the firm said.

Expecting additional capacity coming on line in the first quarter of 2022, the firm raised its price target for Nio.

The EV Price Action: Tesla shares gained 4.34% Wednesday, closing at $1,067.95. Nio lost 2.68%, closing at $39.55. Lucid plunged 9% to close at $40.75. Fisker dropped 5.08% to $18.89.